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- Swiss Franc weakens against Pound Sterling after UK data surprises
Swiss Franc weakens against Pound Sterling after UK data surprises
- The Swiss Franc takes a step lower versus the Pound on Thursday after UK data beats expectations.
- UK lending and services data both come out higher, suggesting less pressure on the BoE to cut rates.
- The safe-haven Swiss Franc weakens after strong US and China data increases investor risk appetite.
The Swiss Franc (CHF) fell against a strengthening Pound Sterling (GBP) on Thursday after risk sentiment improved on the back of strong global macroeconomic data, in particular data from the United Kingdom (UK).
Overall – and despite simmering geopolitical tensions – the positive boost to investor risk appetite from the figures was not as advantageous for the safe-haven Swiss Franc as the risk-sensitive Pound.
The day started with China recording a higher-than-expected Services PMI for December showing the world’s second largest economy holding its form. This was followed by stronger-than-forecast US labor market data.
Sterling rose in most pairs on the back of strong lending data, which showed people continuing to borrow and take out mortgages, seemingly unfazed by higher interest rates. A strong Services PMI result seemed to turn the tables on the somewhat negative narrative that has bedeviled the UK economy since growth data was revised down to show a contraction in GDP in Q3.
Daily digest market movers: Swiss Franc weakens versus Pound Sterling after UK data surprises
- The Swiss Franc weakens versus the Pound after global macroeconomic data gives investors cause for optimism on Thursday.
- Safe-havens like Gold and the Swiss Franc take a hit whilst risk-on currencies like Sterling rise.
- China Caixin Services PMI rises to 52.9 in December, easily beating estimates of 51.6 and November’s 51.5. Eurozone Services PMI is equally positive.
- US private payrolls data beats estimates, with ADP Employment Change showing the economy added 164,000 new employees in December, against 115,000 expected. In November, 101,000 were added.
- UK lending data seems to suggest borrowers are still taking out loans despite higher interest rates.
- Net Lending to Individuals rises GBP 1.9B in November, beating forecasts of GBP 1.6B; Consumer Credit shows a GBP 2.005B increase when GBP 1.400B had been expected; and Mortgage Approvals rise 50.067K when compared to the expected 48.500K.
- The robust lending data suggests there will be less pressure on the Bank of England (BoE) to bring down interest rates in order to stimulate an economic recovery.
Swiss Franc technical analysis: GBP/CHF breaks down, remaining in bearish long-term trend
GBP/CHF – the number of Swiss Francs that one Pound Sterling can buy – shows a small recovery this week despite the overall bearish tenor of the chart.
The pair is arguably in a downtrend on the weekly chart below despite a recovery taking place on the daily and intraday charts.
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Pound Sterling vs Swiss Franc: Weekly Chart
GBP/CHF has broken below the lower line of a falling channel or range-bound consolidation that has been forming since 2022. If the break holds, this suggests a risk the pair could fall to 1.0400 eventually, which is the 61.8% extrapolation of the range to the downside. A break below the 1.0637 lows would signal a continuation down towards that target.
The pair may be encountering resistance from the lower boundary of the wedge/range at the current market level as it rises back up to it after the breakdown last week.
The MACD momentum indicator is showing a decline in line with price, which supports the longer-term bearish picture.
Swiss Franc FAQs
What key factors drive the Swiss Franc?
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
Why is the Swiss Franc considered a safe-haven currency?
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
How do decisions of the Swiss National Bank impact the Swiss Franc?
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
How does economic data influence the value of the Swiss Franc?
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
How does the Eurozone monetary policy affect the Swiss Franc?
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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